Brazil talking out of both sides of its mouth to WTO?

It’s a good thing the U.S. cotton program is damaging Brazil’s cotton producers. If it wasn’t for USDA’s counter-cyclical payments and the marketing loan, you’re left to wonder just how much cotton would Brazil’s growers be turning out now?

That’s a somewhat tongue-in-cheek look at reports Brazilian farmers have just completed harvesting 7 million bales for 2006-07 (the seasons are reversed in the Southern Hemisphere. U.S. growers, meanwhile, have reduced their plantings by 28 percent.

“Brazil’s harvest they just completed appears to be their largest on record,” said Gary Adams, the National Cotton Council’s director of economics and policy. “Right now, USDA has it plugged in at about 7 million bales. So we are seeing expanded production in Brazil.”

Speaking to a joint meeting of the American Cotton Producers and the Cotton Foundation in St. Louis, Adams said Brazil’s internal prices have risen and that the country will probably be a larger exporter of cotton in the next several months.

The increase in Brazil’s production is in direct contrast to its claims before a World Trade Organization review panel that the U.S. cotton program continues to suppress world cotton prices and damage foreign growers in countries like Brazil.

Other National Cotton Council representatives speaking in St. Louis said at the same time Brazilian officials have been arguing before the WTO panel that U.S. subsidies were depressing world cotton prices, the Brazilian government was busy selling government-held cotton stocks on the Brazilian market in order to lower internal Brazilian cotton prices.

“The actions of Brazil’s own government in April and May of 2007, when it sold nearly two-thirds of its government held cotton stocks to drive down prices are clearly incompatible with Brazil’s contemporaneous arguments that the United States was suppressing world cotton prices,” said Bill Gillon, an attorney representing the Council.

“The Brazilian government was arguing (and the WTO panel apparently agreed) the U.S. cotton program was causing price suppression in the world market, even though the Brazilian government was taking action to drive down domestic cotton prices. Brazil’s words to the WTO were blatantly inconsistent with Brazil’s own actions at the time.”

(Gillon was referring to press reports the WTO panel ruled in favor of Brazil after the latter brought a complaint that the United States was not moving fast enough in response to a 2005 WTO panel decision that the U.S. cotton program had caused “serious prejudice” to Brazil’s farmers.)

NCC leaders said throughout the St. Louis meeting the facts do not bear out Brazil’s claims before the WTO review panel in Geneva earlier this spring.

“Since the United States eliminated its step 2 program, U.S. cotton exports declined significantly, U.S. acreage dropped 28 percent and production is expected to decline by 20 percent or more for 2007,” said Gillon.

“Cotton production and exports are dramatically up in India and Brazil’s production has also risen since the first panel decision and world cotton prices are up.”

While the United States did not alter other aspects of its cotton program after the first panel decision, he said, “the measure of this type of proceeding is not whether the U.S. changed all of its programs, but whether the changes it did make were enough to ensure the program was not causing significant price suppression in world markets.

“Clearly, with U.S. production down and the rest of the world producing at a record pace, the U.S. program is not causing anyone injury.”

Noting the WTO panel’s report is supposed to remain confidential until it is translated in all the organization’s official languages, Gillon said that when the compliance panel report is made public, he hoped it would explain the discrepancy between the apparent decision and the current world cotton market.

“In order for the U.S. to be able to take rational policy steps to adjust to WTO decisions, it must have a clear description of what it is doing wrong,” he said. “So far, while maintaining that the United States is causing significant price suppression, no WTO panel has told us what ‘significant’ means.”

Gillon said the current panel had strong evidence before it tending to show the U.S. program (even before parts of it were eliminated) could have had no more than a 2 or 3 percent impact on world prices.

“If the panel did not discredit that evidence, we may have a decision by the WTO that a 2 or 3 percent movement in prices is ‘significant,’ which seems to fly in the face of common sense.”